TARP 2.0: Time for a Change
The lead story in today's Washington Post foretells of the impending disaster should either the Bush or Obama administrations seek access to the second $350 billion tranche of the Trouble Asset Relief Program (TARP) "despite intense opposition in Congress," sources familiar with the discussions said.
House and Senate leaders, senior Bush administration officials, and Obama transition staff regard TARP II funds as essential in combating the worst depredations of the deepening recession. As the Post reports, "without the money, [they know] it would be nearly impossible to offer significant help for homeowners facing foreclosure, stabilize the financial system or jump-start the credit markets so more consumers and companies can get loans."
But without reforms substantially improving funding procedures and transparency, TARP 2.0 may be dead on arrival in Congress.
Under the TARP statute approved by Congress in October, one of the administrations must inform lawmakers that it seeks access to the second and final installment of $350 billion. Unless Congress passes a resolution rejecting the request within 15 days, the Treasury can begin to tap the funds. If Congress turns down the request, the president could veto the resolution and then the Treasury could proceed. The money would then be blocked only if Congress overrides the veto, which would require a two-thirds majority in both chambers.
The prospects of congressional approval for appear dim. Without intervening legislation reforming TARP, leaders are convinced that lawmakers would block release of the supplemental funds to the Treasury. "A majority of lawmakers in both parties are strongly resistant to giving more money to continue the program, Democratic leaders say, adding that a request from either administration is likely to be rejected, making a veto almost unavoidable."
So concerned are congressional leaders about the outcome of a vote on TARP 2.0, one congressional source told the Post, that "advocates of the plan are exploring whether there are enough votes in the Senate to sustain a veto." They are weighing the costs and benefits of the Bush administration submitting a request for the money to Congress, so it - and not the so-to-be-installed Obama administration - would sustain the political ignominy of a bruising defeat in Congress.
This course of action is enormously risky and just as gratuitous. An alternative strategy is at hand and, since time is of the essence, should be taken under consideration immediately.
The deepest and most intractable objections to TARP - in Congress and among the population at large - stem from the lack of transparency regarding how the funds have been used and distributed. House Financial Services Committee chair Barney Frank (D-MA) has introduced a bill setting aside $40 of the $350 billion for foreclosure prevention and mitigation. Frank's bill would also require institutions receiving funds to account for the use of the money.
These reforms, while welcome, may well be insufficient by themselves if sentiment in Congress toward TARP is to turn around in time. Members of Congress, taxpayers, and Americans in general want assurances that the Treasury Department has an articulable, defensible strategy in making its transactions and that taxpayer money is not being used for golden parachutes, dividends, stock repurchases, etc., that is, in ways not contemplated when Congress originally passed the TARP legislation. The lack of such assurances to date has bred broad resentment and distrust.
One way to address and remedy this uncertainty and stem the rising distrust would be to change the way TARP funds are allocated and disbursed and to provide greatly enhanced disclosure on this score. Rather than transferring enormous lump sum to financial institutions, TARP 2.0 could instead award funds on a "project finance" basis, which would introduce enhanced transparency and enforceability into the selection process and the use of funds:
1) invite financial institutions, automotive companies, municipalities, cooperatives, etc., to submit proposals for funding specific projects and purposes, e.g. , for interbank lending, consumer loans, distressed asset sales, mortgage foreclosure forbearance and modifications, acquisition financing, etc.;
2) require that
Additional disclosures relating to these transactions should be required, among them: the size of the purchase; the coupon rate; collateral provided; the term, in years or perpetuity; the transferability of any preferred shares/warrant; restrictions on dividends; repurchase conditions; voting rights; the ranking, pari passu vis-a-vis other preferred shares; and redemption terms. Ultimately, taxpayers should know: How did they fare when the Treasury sold or redeemed the stocks or warrants it purchased with their money?
The foregoing is not designed to retard, impede, or obstruct the deployment of the final tranche of TARP, but to make it politically possible. The idea is simply to ensure that the government has the informed consent of the governed in its methods for dealing with the nation's greatest economic crisis in decades.
Keep the $350B, let the big banks dissolve and let the regional banks take up the slack. There is no need for all this drama.
January 10, 2009 7:56 PM | Reply | Permalink
Don't you just love Washington politicos like Chasin?
Don't explain why the legislative action you want is a good idea; explain how the professionals can blow smoke and give themselves sufficient cover to get the result the elite wants.
Always process with these guys; hardly ever substance.
January 10, 2009 11:03 PM | Reply | Permalink
thanks for useful information!
Best regards, Mary, CEO of youtube to mp3
December 16, 2010 5:06 AM | Reply | Permalink
This is a smart blog. I mean it. You have so much knowledge about this issue, and so much passion. You also know how to make people rally behind it, obviously from the responses. Youve got a design here thats not too flashy, but makes a statement as big as what youre saying. Great job, indeed.children health
January 10, 2011 8:33 AM | Reply | Permalink
I do agree with all the ideas you have presented in your post. They’re very convincing and will definitely work. Still, the posts are very short for starters. Could you please extend them a bit from next time? Thanks for the post.by healthy families and child health plus
February 15, 2011 11:48 PM | Reply | Permalink
So improve the transparency!
January 10, 2009 8:07 PM | Reply | Permalink
I suspect that the bulk of Tarp I went to payoff China's security of senior Fannie Mae debt.
January 12, 2009 12:41 AM | Reply | Permalink
There is an interesting article about TARP on Wiki.
--The Troubled Assets Relief Program (TARP) is a program of the United States government to purchase assets and equity from financial institutions in order to strengthen the financial sector. It is the largest component of the government's measures in 2008 to address the subprime mortgage crisis.
...........
TARP participation restrictions
The Act’s criteria for participation are very unclear. It states that “financial institutions” will be included in TARP if they are “established and regulated” under the laws of the United States and if they have “significant operations” in the United States. The Treasury will need to define what institutions will be included under the term “financial institution” and what will constitute “significant operations.”[1]Companies that sell their bad assets to the government must provide warrants so that taxpayers will benefit from future growth of the companies.[4] Certain institutions seem to be guaranteed participation. These include: U.S. banks, U.S. branches of a foreign bank, U.S. savings banks or credit unions, U.S. broker-dealers, U.S. insurance companies, U.S. mutual funds or other U.S. registered investment companies, tax-qualified U.S. employee retirement plans, and bank holding companies.[1]
The President is to submit a law to cover taxpayer losses on the fund, using "a small, broad-based fee on all financial institutions."[4] In order to participate in the bailout program, "companies will lose certain tax benefits and(travel destinations), in some cases, must limit executive pay. In addition, the bill limits 'golden parachutes' and requires that unearned bonuses be returned."[4] The fund has an Oversight Board so that the U.S. Treasury cannot act in an arbitrary manner. There is also an inspector general to protect against waste, fraud and abuse.[4]
Whether hedge funds, as virtually unregulated institutions, will be included depends on the discretion of the Treasury, but it seems unlikely. Hedge funds (partnerships in which experienced investors pool their money to make complex, and often risky, investments using advanced investment strategies) have recently become politically unpopular in the U.S. as a result of their perceived role in creating the crisis. This perception of hedge funds makes it difficult for the Treasury to allow them to participate in a taxpayer-funded bailout program.[1]
http://en.wikipedia.org/wiki/Troubled_Assets_Relief_Program
January 13, 2009 4:05 AM | Reply | Permalink
thanks for useful information!
Best regards, Mary, CEO of youtube to mp3
December 16, 2010 5:06 AM | Reply | Permalink
What is going to happen to white people now that this obama is coming? is there going to be anything left? how come all these negros have a house and i dont
January 16, 2009 12:46 AM | Reply | Permalink
improving the transparency, I dont know if it be able at all but we dont have any other choice, try slots,maybe it will help...
April 3, 2009 9:43 AM | Reply | Permalink
One thing wherein we can address these changes in politics is by transparency and openness in fiscal spending. There are a lot of ways in order to prevent corruption in the government. In the growth of human technology, people made use of social networks or website database to track where the government funds are heading. One of these is the searchable website database known as the LegiStorm. It is a non-partisan site that tracks how members of Congress are spending public money. Their databases include information on Congressional salaries, travel, financials and information on the latest happenings on the House and Senate floors and committees. In this way, people can get access to how the staffs of the Congress spend the government funds. "Fact finding trips" have been lampooned as wasteful spending for years, as they don't always reveal anything, and its not like the funds used are a personal loan – the funds come from the taxpayers. The only people protesting it so far are the people whose information is posted, and doubtless they would get a personal loan to quash LegiStorm and go back to their secrecy.
April 13, 2009 7:01 AM | Reply | Permalink
t it seeks access to the second and final installment of $350 billion. Unless Congress passes a resolution rejecting the request within 15 days, the Treasury can begin to tap the funds. If Congress turns down the request, the president could veto the resolution and then the Treasury could proceed. The money would then be block
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August 12, 2010 8:22 PM | Reply | Permalink
I agree with you that the foregoing is not designed to retard, impede, or obstruct the deployment of the final tranche of TARP, but to make it politically possible. The idea is simply to ensure that the government has the informed consent of the governed in its methods for dealing with the nation's greatest economic crisis in decades.
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